WASHINGTON– While the Universal Service Fund (USF) was originally developed to provide all Americans with ubiquitous access to telephone services at reasonable prices, there have been questions about the extent to which this funding actually helps consumers. According to a new report authored by Steve Pociask, the president of the American Consumer Institute Center for Citizen Research, the old USF mechanism should not be used as a model for future broadband funding.
“This federal program totals $4 billion and is financed by consumers through a fee on their telephone bills. But the funding is not distributed in proportion to consumer needs; it is dispersed to help telephone companies,” writes Pociask.

Key report findings include:

  • The biggest recipients of USF are small telephone companies, who (collectively) are the most profitable in the industry. 
  • If the USF high-cost fund were entirely eliminated, small rural telephone companies would (collectively) still be more profitable than their larger counterparts. 
  • Contrary to common beliefs, small telephone companies are not most affected by high capital costs; they are most burdened by administrative expenses.
  • USF subsidizes smallness, and works to discourage lower cost production and attainment of optimal scale. 

“Until there is a quantitative assessment of costs and benefits for these high-cost funding programs, policymakers cannot know if these programs actually work, help the right consumers, or whether the funding is appropriately sized,” writes Pociask. “As policymakers develop a universal service program for broadband services, it should not replicate the problems of the current legacy USF mechanism. The focus of USF should be on benefiting consumers.”

Pociask’s paper, High Cost, Little Benefit, can be viewed here.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a 501(c)(3) nonprofit educational and research institute.  For more information, visit www.theamericanconsumer.org.